Amazon extended its international footprint with a deal to acquire Middle Eastern ecommerce leader Souq.com.

Company data

Ecommerce is still in the early stages in the Middle East, and data for the region is relatively thin.

An October 2016 survey of internet users in six markets across the region found that nearly 40% said they made digital purchases less frequently than once every three months.

But 45% of the respondents in an Effective Measure survey said they made digital purchases at least once a month—not an insignificant base from which to grow.

Amazon described Dubai-based Souq.com as the largest online retail and marketplace platform in the Arab world, with more than 8.4 million products for sale. It said Souq.com has 45 million visits per month.

Amazon's International Experience

Amazon has already learned a tough lesson in international expansion from its attempt to break into China. Although the company entered the market in 2004 with its purchase of online bookseller Joyo, it has little to show for its efforts. Amazon controlled less than 1% of B2C ecommerce sales in China in 2016, according to iResearch Consulting Group.

Amazon has now shifted its attention to India, pledging to invest $5 billion in its operations in the country. Those resources appear to have already paid dividends, with recent research showing that a high number of digital buyers in India use Amazon; homegrown company Flipkart is its main rival there.

But Amazon must also reckon with Alibaba—the company that defeated it in China—in India and other Asian markets. Alibaba has invested heavily in India-based ecommerce platform Paytm, giving it a platform with which to battle Amazon there.

Amazon also faces a serious challenge from Alibaba in Southeast Asia. Alibaba’s 2016 purchase of the Lazada Group—which sells a range of goods in six Southeast Asian markets—gives it a much stronger presence in the region. Meanwhile, TechCrunch reported that Amazon had pushed back its Q1 2017 launch in Singapore to sometime later this year, significantly delaying its official entry into Southeast Asia.

Market Challenges

The World Bank estimates that economic growth in the Middle East and North Africa will accelerate a bit this year, rising to 3.1% from 2.6% in 2016. Aside from the economic risks associated with the long-running war in Syria and other conflicts in the region, oil price volatility could affect growth.

As in other emerging ecommerce markets, a reluctance to use credit cards for online transactions—or a simple lack of credit cards—poses an obstacle to growth. The Effective Measure survey reflected that challenge, with nearly three-quarters of the respondents saying they prefer to pay cash on delivery for digital purchases.

Earlier this year, talks reportedly fell apart for a deal in which Amazon and Flipkart would have acquired Souq.com.

Photo credit: Amazon.com

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